Our very own CTO Samuel Brooks talks to Lisa Lintern from New Payments Platform (NPP) about payments through Blockchain. He explains how Block8 has developed enterprise solutions that combine blockchain with real-time payments on the NPP.
In the interview, they talk about the following topics:
Hello and welcome to NPP SoundBites.
I'm Lisa Lintern.
The application of blockchain and payments is a topic often debated. In this episode of NPP Sound Bytes I speak with Samuel Brooks, the Chief Technology Officer at Block8.
Block8 is a blockchain development studio, that has developed and delivered enterprise solutions that combine blockchain with real-time payments on the NPP.
I started by asking Sam the problems his organisation seeks to solve.
Block8 uses blockchain, a form of distributed ledger technology, to develop and offer enterprise solutions. What are the problems or challenges that Block8 seeks to solve?
Distributed ledger technology, smart contracts, blockchain - they allow us to develop secure, peer-to-peer software, or decentralised software. But at Block8 we're certainly not running around looking for nails; decentralised software can disintermediate centralised services and connect up business and legal processes in a way that was previously not possible. It's the ultimate inefficient market killer.
But this is the theory, and the skill comes into it when you go to turn that theory into practice and consider a lot more practical things like identity, network effect, and payments.
Any DLT solution must be objectively superior than a centralised one in terms of either processing times, operational cost, real-time critical data and decision-making, or risk management in general.
And an important part of that is to understand that blockchain tech, distributed ledger technology, smart contracts - they need to be considered as belonging in the business process domain - not the data domain.
So consider a business process that is currently provided by an intermediary; the source of truth is typically kept on the intermediary's database. It's not held with you; it's centralised.
So the reason I make this point about smart contracts operating in the business domain is that this is how that false equivalence of blockchains being poor or slow databases comes about; if you're using a blockchain as a database, yes of course it's going to be slower than a database, but the point is you're doing it wrong.
So, to answer your question, the problems are mostly seen as opportunities with blockchain. But, seeing how some software works today looks really, really crazy. We feel like we're seeing something now that will only be obvious to everybody in a decade or more.
How does Block8 use the NPP? What are the benefits you can deliver by combining blockchain with real time payments?
It's quite common when designing a blockchain application to come across payments; consider the common model of developing a decentralised application that can operate directly between two parties, to replace an existing intermediating service.
In the centralised context, in the intermediating context, we have a third party who holds the current source of truth for the two parties wishing to transact - typically some kind of asset ownership information, but it could be, say, the current state of a legal agreement. That information is a necessary input in order to understand who is to settle with whom. And actually tracking the payment is an extension of managing the source of truth of ownership. It's no good only managing the source of truth of ownership if you can't also manage the truth about who paid who.
And so in the decentralised context, we do the same thing, just without the third party. The software that would ordinarily operate between the two parties to contract - the two parties wishing to interact digitally - now operates across them simultaneously instead of between them. The benefits are that it's cheaper overall, because we don't have to pay for the intermediary's profits, the transactions being more private, because it's just between the interested parties, and it's usually much faster as well because it can execute on an adhoc basis, and be completely free of any extraneous constraints that come with using a centralised system, things like batch payment processing, netting, things like that.
Now, in terms of actually managing payments, there are several ways to solve for payments in a distributed application (again, things like distributed netting, or do things like: receipts of promises, or barter, or depositary receipts for cash), but sometimes you really just need to move fair dinkum Aussie dollars from one account to another as a result of the execution of a smart contract.
And that's where we look to the NPP to provide that facility. Going back to what I mentioned before about blockchains programming the business domain (and not the data, or database domain) - there are plenty of business processes with the need to trigger a payment, you can imagine.
As more and more smart contracts go live as adoption increases over time, it seems obvious to me that we should expect to see huge demand to move genuine fiat money around in real time.
So you've been bringing this to life by partnering with a number of companies via joint-venture. Can you talk me through some of those and how the NPP was selected and used in those solutions?
So we're doing a few interesting things at the moment:
We're doing work with a company in unlisted private equities. In terms of blockchain, the benefit there is to securely share the digital register, meaning that it is not able to be a black box, it cannot be a black box, because it's shared with everyone at the same time. This is important for all of the various stakeholders in the asset who all can now rely on an algorithmic guarantee of truth, rather than trust, or guarantees in other forms, such as guarantees relating to a contract - in order to be able to have access to the source of truth for their holdings, and optionally, other related rights and obligations.
Another interesting space we're working in is asset-backed securities. Blockchain is chiefly being used here to automate what is currently a highly fragmented and very analogue set of processes. The operation of intermediaries in this context comes in the form of a trustee - again being a trusted, and expensive when you look at the alternative mode, third party to manage the state of affairs and payment that result from changes in the underlying ledger.
We're also doing some work with a project in construction contract automation. So, this is a hugely inefficient space, and interestingly, one which actually doesn't have an existing market of intermediaries. So all of the agreements between builders and developers and subcontractors, they're all pairwise, they're all individual agreements between each other. So in this space we see those agreements routinely stall and turn litigious, and so the NPP in that space, it's being coupled with a reimagining of that industry in order to move money around and keep these contracts on track and out of court or arbitration.
In all cases, we're looking to the NPP as a way to push or pull a fiat payment in response to a change to the shared source of truth within the application. But the other thing about NPP that's worth mentioning is its cost structure.
We've often found that the NPP can be significantly cheaper than alternative payment rails because the cost of a transaction is fixed, rather than percentage-based. So when we're dealing with large cash movements, the NPP becomes the obvious choice.
So, I think the key piece there to me is what will be the new-normal in terms of inter-business transaction speed; if you can execute a trade process in a few seconds, rather than at the end of the month, you're going to have to look to a fiat rail that can keep up, and so because the NPP can connect you with your counterparty's bank account and settle so quickly, it's going to look quite attractive to a distributed software architects looking for that fast settlement.
For that reason I think the future of the NPP is quite bright. As more and more organisations realise that distributed tech can automate their inter-business relationships, this will put intermediary-style businesses under a fair amount of existential pressure, and there are going to be more and more opportunities for Block8 to build software that is cheaper and faster than what has come before by automating these digital rights and obligations.
So looking to the future, The NPP’s Mandated Payments Service, which is currently under development, will enable customers to authorise payments to be made from their bank account. What impact do you think this will have for Block 8 and more broadly, for blockchain?
Simply put, the MPS will remove a key barrier for Australian fintech innovation. I say that because MPS access will allow entrepreneurs to build financial products and services with much higher levels of financial automation. Money will be more liquid. People, businesses will be paid sooner. The economy will become more efficient.
I think it must be said as well, automating payments in this way is actually nothing new; ADIs have had the ability to do this for a long time and historically, their propensity to expose these APIs to other fintechs was not just done. It took a great deal of effort and luck to be able to meaningfully couple a fintech application with fiat payments. So by pulling this functionality back into a common service rail it levels out the playing field for fintech innovation to reach market.
In practical terms for the consumer, the MPS will mean far fewer context switches and manual steps in their financial applications, and, critically as well, more automation in enforcing their digital rights and obligations again when it comes to paying and getting paid.
On your website you say that Block8 believes in the use of distributed ledgers to disrupt existing social and economic structures and make the world a fairer and more efficient place for all. Can you unpack that for me a bit more?
So, I suppose, we see the possibility of a world in which the software that we use is no longer at risk of abuse because of the data that tends to pool in large centralised contexts. Think of Facebook as one such example of this, and the problems that it has given us because of the huge data it has managed to collect in a centralised system. This is just one of the risks of centralising information.
Markets can be reformed with this technology, without those same risks of power imbalance from information asymmetries.
Sam listening to you, I'm getting a picture of a future that could look quite different, where blockchain is an initiator of significant change. But today there seems to be constant debate about what the use cases for blockchain are in reality. What's your view on that, and what's your favourite use case for blockchain that you would like to see get up and running right now?
That's true. I most recently wrote about this with Block8's submission to the Senate Select Inquiry into Fintech and Regtech Technology.
I think there's two main reasons for the lack of uptake. The first one's quite simple; there's just a broad lack of awareness of the existence of the technology and we need to do more in order to couple top level desire from the likes of the Federal Minister and the Prime Minister to be an innovative economy and use this technology in a way that makes up more competitive both domestically, with, the actual awareness and execution at a lower level.
I think the other part of it is misconception. And, I've been doing this for a while now, and from my perspective, things like scalability is solved. Privacy is solved. Decentralised systems are actually fundamentally more secure and more resilient than centralised ones.
So I would like to see us have an open conversation where we can actively target and break those misconceptions that seem to persist.
I guess, in terms of favourite use cases, one thing I haven't seen done at all, and I think this needs more attention, is this notion of a shared industry application where companies of the same type come together to share a business process between them that they all perform, currently, but one that is essentially a cost of business and doesn't really add any value to their end customers. Think about these sorts of applications as essentially out-sourcing that part of your operations, but to an entity that you both control and have an interest in, and one where the development cost is completely shared across all of your competitors.
I think this is a great way to reduce the aggregate cost of an industry and boost its overall competitiveness. It's also a fantastic way to achieve customer interoperability. There are lots of examples where we want competition in a market, but we also want end-customer interoperability. So, whilst we want two or more markets to operate within a given industry, so that we have competition within that industry, we also want to not fragment the entire user base. So by using a shared, or a common business process fabric, via a distributed system, we can satisfy both of those requirements at once. It is a great way to satisfy both of these requirements at once to achieve competition and industry efficiency in the same software system.
So, a distributed ledger isn't a good fit in every instance. But guess what, as I think everybody will eventually agree with, neither is a centralised database.
Well Sam I think that was a lot of thought-provoking content there and I think this will be a very interesting episode of NPP SoundBytes for the payments industry so thanks so much for your time.
Absolute pleasure, thank you.